ALBANY, New York (Reuters) - Wall Street banks and brokerages may cut bonuses for their highly-paid workers by some 20 percent this year, New York Gov. David Paterson said on Monday, estimating that each 10 percent reduction in bonus pay costs the state $350 million in tax revenues.
At a news conference, the Democratic governor mocked economists who predict that the country will avoid a recession and resume economic growth next year.
“This has finally confirmed to me that flying saucers have landed and that people from outer space are in our midst, influencing policy,” he said.
Predicting the state could lose an estimated $1.7 billion from slumping profits for Wall Street’s financial firms, he forecast severe state budget cuts.
“The reality is that there is a tremendous effect that income taxes, property taxes, rising fuel prices, rising food prices and all of the debt that the state has undergone is going to have in terms of our governance,” Paterson said.
New York’s economy has long been dominated by financial companies. Last year, they paid $33.2 billion in bonuses, with the average employee collecting $180,420 in bonus pay, according to the state comptroller. The 2007 total was down 2 percent from the record $33.9 billion set the previous year.
Paterson said the state should sell tax-free bonds to offer college students low-cost loans, adding that debt should only be sold if “it’s essential to our economic recovery.”
New York is second only to California in state debt, he said, bashing past debt sales that, for example, paid for computers that were obsolete before the first bond payments were made and cars that went out of service before the debt was repaid.
Paterson said he was considering lobbying federal officials for aid to entities like Bear Stearns, Lehman Brothers and federally-sponsored organizations, referring to mortgage finance giants Fannie Mae and Freddie Mac.
Bear Stearns this spring was forced into the arms of JPMorgan Chase after investors lost confidence in its ability to cope with subprime losses. Lehman Brothers was later rattled by similar concerns, but remained independent.
Last week, Paterson called on Congress to enact a second economic stimulus package that would give states funds for job-creating projects, like building roads and bridges, and boost its share of Medicaid, the federal-state health insurance program for the poor, disabled and elderly.
On Monday, Paterson called the current Medicaid reimbursement formula “anachronistic” because it is based on per capita income, which means it is skewed by Wall Street’s high salaries. The rules should instead reflect poverty rates, he said, and New York’s is 25 percent above the U.S. average.
Separately, Democratic Speaker Sheldon Silver during an Albany radio show said it will be “very difficult” to enact a property tax cap before the November elections.
Silver also lobbied for a windfall profit tax on oil companies that would raise money to help low-income homeowners pay their heating bills this winter. A Paterson spokesmen had no immediate comment on the Assembly legislature.
A spokesman for state Senate Majority Leader Dean Skelos said: “We think that New Yorkers would have been better served if the Assembly would have joined us in passing legislation to suspend the 32 cents per gallon state tax on gasoline for the summer months to provide them with real relief at the pump.”
Reporting by Elizabeth Flood Morrow in Albany, writing by Joan Gralla